International real estate investment trust-related exchange traded funds could strengthen as global investors turn to higher yielding assets in response to central banks’ loose monetary policies.
Similar to what happened in the U.S., global investors could pile into high-yield international REIT assets as loose monetary policies drive down yields across the globe.
ETF investors have a number of options to track high-yield international REITs. For instance, the SPDR Dow Jones International Real Estate ETF (NYSEArca: RWX), which follows the Dow Jones Global ex-U.S. Select Real Estate Securities Index, has a 3.05% 12-month yield. [International REIT ETF Gains Acclaim]
However, with many foreign markets loosening their monetary policies and the Federal Reserve eying an interest rate hike, currency risk is a major consideration when investing in overseas assets. Alternatively, investors can utilize the recently launched Deutsche X-trackers Dow Jones Hedged International Real Estate ETF (NYSEArca: DBRE) as a currency-hedged version to RWX. DBRE tries to reflect the performance of the Dow Jones Global ex-U.S. Select Real Estate Securities Total Return Net Index (USD) Hedged, which tries to mitigate the exposure to fluctuations between the U.S. dollar and 17 non-U.S. currencies.
DBRE tracks many countries that have already enacted interest rate cuts or stimulus measures. For instance, top country allocations include Japan 21.2%, the United Kingdom 15.5%, Australia 12.7%, Hong Kong 10.6%, France 10.2%, Canada 10.0%, Singapore 7.3%, Philippines 2.3% and Swizterland 2.1%.
Many Asian and European countries have cut interest rates and even implemented quantitative easing programs to stimulate their economies. The loose monetary policies have pressured sovereign debt yields across the globe. Consequently, global investors will likely shift into riskier assets, like REITs, to augment their declining fixed-income portfolios.
Meanwhile, the U.S. Federal Reserve is looking at an interest rate hike this year, which would weigh on domestic REITs.
“As rates rise, REITs’ interest payments go up, which means REITs have less cash flow available for dividends for equity investors. As a result, higher rates mean greater interest expense,” according to Morningstar analyst Robert Goldsborough.
So far this year, the shift in foreign monetary policies may have supported the outperformance in global REITs. For instance, the Vanguard REIT ETF (NYSEArca: VNQ), which tracks U.S. REITs, has declined 3.0% year-to-date while RWX gained 3.6%.
For more information on real estate investment trusts, visit our REITs category.
Max Chen contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.